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Working Paper
Uncertainty, instrument choice, and the uniqueness of Nash equilibrium: microeconomic and macroeconomic examples
This paper contains two examples of static, symmetric, positive-sum games with two strategic players and a play by nature: (1) a microeconomic game between duopolists with joint costs facing uncertain demands for differentiated goods and (2) a macroeconomic game between two countries' with inflation-bias preferences confronting uncertain demands for moneys. In both examples, each player can choose either of two variables as an instrument, and reaction functions are linear in the chosen instruments. With no uncertainty, there are four (Nash) equilibria, one for each possible instrument pair, ...
Working Paper
Did bankruptcy reform cause mortgage default rates to rise?
This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged - thus loosening debtors' budget constraints. Homeowners in financial distress can therefore use bankruptcy to avoid losing their homes, since filing allows them to shift funds from paying other debts to paying their mortgages. But a major reform of U.S. bankruptcy law in 2005 raised the cost of filing and reduced the amount of debt that is discharged. The authors argue ...